Financial management involves planning, organizing, and controlling a company's financial resources and activities. The key elements of financial management include investment decisions, financing decisions, and dividend decisions. Investment decisions involve determining optimal asset levels and specific assets to acquire or reduce. Financing decisions involve determining the best sources and mixes of financing. Dividend decisions involve determining how much profit to distribute to shareholders versus retaining. The objectives of financial management are to ensure adequate and regular funding, optimal utilization of funds, adequate returns for shareholders, and maintaining a balanced capital structure.

1. Financial
Management

2. Introduction
 Financial Management means planning, organizing,
directing and controlling the financial activities such
as procurement and utilization of funds of the
enterprise.
 It means applying general management principles
to financial resources of the enterprise.

3. Definition
 Finance – planning, obtaining, and managing the
company’s funds in order to accomplish its
objectives.
 Maximizing overall worth
 Meeting expenses
 Investing in assets
 Increasing profits to shareholders

4. Scope/Elements
 Investment decisions
 includes investment in fixed assets (called as capital
budgeting).
 Investment in current assets are also a part of
investment decisions called as working capital
decisions.

5. Investment Decisions
 Most important of the three decisions.Most important of the three decisions.
 What is the optimal firm size?
 What specific assets should be acquired?
 What assets (if any) should be reduced or
eliminated?

6. Scope/Elements
 Financial decisions
 They relate to the raising of finance from various
resources which will depend upon decision on
type of source, period of financing, cost of
financing and the returns thereby.

7. Financing Decisions
 Determine how the assets (LHS of balance sheet) willDetermine how the assets (LHS of balance sheet) will
be financed (RHS of balance sheet).be financed (RHS of balance sheet).
 What is the best type of financing?
 What is the best financing mix?
 What is the best dividend policy (e.g., dividend-
payout ratio)?
 How will the funds be physically acquired?

8. Scope/Elements
 Dividend decision
 The finance manager has to take decision with
regards to the net profit distribution.
 Net profits are generally divided into two:

 Dividend for shareholders- Dividend and the rate of
it has to be decided.

9. Dividend decision
 Retained profits- Amount of retained profits has to
be finalized which will depend upon expansion and
diversification plans of the enterprise.

10. Asset Management Decisions
 How do we manage existing assets efficiently?
 Financial Manager has varying degrees of
operating responsibility over assets.
 Greater emphasis on current asset management
than fixed asset management.

11. Objectives of Financial
Management
 The financial management is generally concerned
with procurement, allocation and control of
financial resources of a concern.
The objectives can be-
 To ensure regular and adequate supply of funds to
the concern.

12. Objectives of Financial
Management
 To ensure adequate returns to the shareholders
which will depend upon the earning capacity,
market price of the share, expectations of the
shareholders.

13. Objectives of Financial
Management
 To ensure optimum funds utilization.
 Once the funds are procured, they should be
utilized in maximum possible way at least cost
 . To ensure safety on investment, i.e, funds should be
invested in safe ventures so that adequate rate of
return can be achieved.

14. Objectives of Financial
Management
 To plan a sound capital structure-
 There should be sound and fair composition of
capital so that a balance is maintained between
debt and equity capital.

15. Functions of Financial
Management
 Estimation of capital requirements:
 A finance manager has to make estimation with
regards to capital requirements of the company.
 This will depend upon expected costs and profits
and future programmes and policies of a concern.

16. Cont’d…
 Estimations have to be made in an adequate
manner which increases earning capacity of
enterprise

17. Functions of Financial
Management
 Determination of capital composition:
 Once the estimation have been made, the capital
structure have to be decided.
 This involves short- term and long- term debt equity
analysis.

18. Cont’d….
 This will depend upon the proportion of equity
capital a company is possessing and additional
funds which have to be raised from outside parties.

19. Functions of Financial
Management
 Choice of sources of funds:
 For additional funds to be procured, a company
has many choices like- Issue of shares and
debentures
 Loans to be taken from banks and financial
institutions

20. Cont’d…
 Public deposits to be drawn like in form of bonds.
 Choice of factor will depend on relative merits and
demerits of each source and period of financing.

21. Functions of Financial
Management
 Investment of funds:
 The finance manager has to decide to allocate
funds into profitable ventures so that there is safety
on investment and regular returns is possible.

22. Functions of Financial
Management
 Disposal of surplus:
 The net profits decision have to be made by the
finance manager.
 This can be done in two ways:
 Dividend declaration - It includes identifying the rate
of dividends and other benefits like bonus.

23. Cont’d…
 Retained profits –
The volume has to be decided which will depend
upon expansional, innovational, diversification plans
of the company.

24. Functions of Financial
Management
 Management of cash:
 Finance manager has to make decisions with
regards to cash management.
 Cash is required for many purposes like payment of
wages and salaries, payment of electricity and
water bills, payment to creditors, meeting current
liabilities, maintenance of enough stock, purchase
of raw materials, etc.

25. Functions of Financial
Management
 Financial controls:
 The finance manager has not only to plan, procure
and utilize the funds but he also has to exercise
control over finances.
 This can be done through many techniques like ratio
analysis, financial forecasting, cost and profit
control, etc.

26. Financial Planning

27. Definition of Financial Planning
 Financial Planning is the process of estimating the
capital required and determining it’s competition.
 It is the process of framing financial policies in
relation to procurement, investment and
administration of funds of an enterprise.

28. Objectives of Financial
Planning
Financial Planning has got many objectives to look
forward to:
 Determining capital requirements-
 This will depend upon factors like cost of current and
fixed assets, promotional expenses and long- range
planning.

29. Cont’d…
 Capital requirements have to be looked with both
aspects:
short- term and long- term requirements.

30. Objectives of Financial
Planning
 Determining capital structure-
 The capital structure is the composition of capital,
i.e., the relative kind and proportion of capital
required in the business.
 This includes decisions of debt- equity ratio- both
short-term and long- term.

31. Cont’d….
 Framing financial policies with regards to cash
control, lending, borrowings, etc.
 A finance manager ensures that the scarce
financial resources are maximally utilized in the best
possible manner at least cost in order to get
maximum returns on investment.

32. Importance of Financial
Planning
 Financial Planning is process of framing objectives,
policies, procedures, programmes and budgets
regarding the financial activities of a concern.
 This ensures effective and adequate financial and
investment policies.

33. Cont’d..
 The importance can be outlined as-
Adequate funds have to be ensured.

34. Importance of Financial
Planning
 Financial Planning helps in ensuring a reasonable
balance between outflow and inflow of funds so
that stability is maintained.
 Financial Planning ensures that the suppliers of
funds are easily investing in companies which
exercise financial planning

35. Importance of Financial
Planning
 Financial Planning helps in making growth and
expansion programmes which helps in long-run
survival of the company.
 Financial Planning reduces uncertainties with
regards to changing market trends which can be
faced easily through enough funds.

36. Importance of Financial
Planning
 Financial Planning helps in reducing the
uncertainties which can be a hindrance to growth
of the company.
 This helps in ensuring stability and profitability in
concern.